Hi Rajeev, I have been through this problem before. There is no doubt that L/C is indeed the best mode of payment. However I have listed some minor problems you might face. In such situations all it needs is better communication with the buyer or seller.

Most problems result from the seller's inability to fulfill obligations stated in the letter of credit. The seller may find these terms difficult or impossible to fulfill and, either tries to fulfill them and fails, or asks the buyer to amend to the letter of credit.

As most letters of credit are irrevocable, amendments may at times be difficult since both the buyer and the seller must agree.

Sellers may have one or more of the following problems:

(1) The shipment schedule cannot be met
(2) The stipulations concerning freight costs are unacceptable
(3) The price becomes too low due to exchange rates fluctuations
(4) The quantity of product ordered is not the expected amount
(5) The description of product is either insufficient or too detailed
(6) The stipulated documents are difficult or impossible to obtain

Even when sellers accept the terms of a letter of credit, problems often arise late in the process. When this occurs, the buyer's and seller's banks will try to negotiate any differences. In some cases, the seller can correct the documents and present them within the time specified in the letter of credit.

If the documents cannot be corrected, the advising bank will ask the issuing bank to accept the documents despite the discrepancies found.

It is important to note that, if the documents are not in accord with the specifications of the letter of credit, the buyer's issuing bank is no longer obligated to pay.

Hope this will answer your apprehensions.

Mr. Neeraj Sharma

Neeraj Electronics

CEO, Neeraj Electronics
Jorhat, India

Free Member, Joined :06/09/2007
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